The Vanguard S&P 500 ETF (VOO +1.25%) tracks the performance of the S&P 500 (^GSPC +1.20%) index, which is made up of 500 companies from 11 different sectors of the economy. It's the most diversified of the major U.S. stock market indexes, offering investors exposure to everything from technology powerhouses to banks.
The S&P 500 has delivered a compound annual return of 10.5% since it was established in 1957, but it's coming off an especially strong year in 2024 with a total gain of 25% (including dividends). Unfortunately, 2025 is off to a weak start with the index declining by 8.7% from its recent all-time high, as investors try to navigate growing uncertainty about global trade, which could significantly impact economic growth.
Investors should stay focused on the long-term picture because history proves the stock market always climbs to new highs given enough time. In fact, one Wall Street analyst predicts the S&P 500 will soar 168% by 2030, so here's why now might be the ideal time to buy the Vanguard S&P 500 ETF.
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The S&P 500 has strict entry criteria. Companies must have a market capitalization of at least $20.5 billion to qualify for inclusion, and the sum of their earnings (profit) must also be positive over the most recent four quarters. Further, companies must be based in the U.S., even if they draw a significant portion of their sales from overseas.
But even if a company ticks all of those boxes, they aren't guaranteed a ticket into the S&P 500. Inclusion is at the discretion of a special committee that meets once per quarter to rebalance the index, ensuring only the highest-quality companies make the cut.
As I mentioned earlier, the 500 companies in the S&P 500 come from 11 different economic sectors. The below table displays the top five sectors by weight, and some of the most popular stocks within those sectors:
|
Sector |
S&P 500 Weighting |
Notable Stocks |
|---|---|---|
|
1. Information technology |
30.7% |
Nvidia, Apple, and Microsoft |
|
2. Financials |
14.5% |
Berkshire Hathaway, JP Morgan Chase, and Visa |
|
3. Healthcare |
10.8% |
Eli Lilly, Johnson & Johnson, and Pfizer |
|
4. Consumer discretionary |
10.5% |
Amazon, Tesla, and McDonald's |
|
5. Communication services |
9.4% |
Data source: Vanguard. Sector weightings are accurate as of Feb. 28, 2025, and are subject to change.
As you can see, information technology is the largest sector in the S&P 500 by a wide margin. That's because the index is weighted by market capitalization, so the largest companies have a higher representation than the smallest. Apple, Microsoft, and Nvidia are the world's biggest companies with a combined market capitalization of $8.7 trillion, so it's no surprise information technology has such a high weighting.
Those three companies have become leaders in hypergrowth industries like artificial intelligence (AI), as have Amazon, Tesla, Alphabet, and Meta, which round out the "Magnificent Seven" -- a nickname Wall Street assigned to those seven companies in 2023 for their strong returns and their dominance in their respective fields.
Industrials, consumer staples, energy, utilities, real estate, and materials are the other six sectors in the S&P 500, so it truly is a very diversified index.
The Vanguard S&P 500 ETF is a very cost-effective way to invest in the S&P. It has an expense ratio of just 0.03%, which is the proportion of the fund deducted each year to cover management costs. It means investors will incur an annual fee of just $3 for every $10,000 they invest in the ETF.
According to Vanguard, competing exchange-traded funds across the industry have a significantly higher average expense ratio of 0.76%, which can detract from investors' returns over time.
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Key Data Points
The S&P 500 could soar 168% by 2030
Wall Street analysts don't always get things right, so investors should never make decisions based solely on their predictions. With that said, Tom Lee from Fundstrat Global Advisors has earned a reputation for his accurate calls on the S&P 500 over the last couple of years.
During 2023, Lee predicted the S&P 500 would emerge from the 2022 bear market and reach a new high of 4,750, while many other analysts were still pessimistic. The index closed the year at 4,769. The S&P then surpassed four out of five of his price targets in 2024 (5,200, 5,500, 5,700, and 6,000), only falling shy of his final call of 6,300. But he also came out with a longer-term forecast last year, predicting the S&P 500 could soar to 15,000 by the year 2030. If he's right, investors can expect a whopping 168% return from the Vanguard S&P 500 ETF between now and then.
Unsurprisingly, Lee thinks AI will be a key driver of that upside. He said companies could pour trillions of dollars into this revolutionary technology to make up for shortages of human workers over the next few years, significantly increasing their productivity. Lee also cited demographic tailwinds, because millennials are now experiencing their highest earning years (between ages 30 and 50), which is typically when people make major life decisions like investing. Gen Zers will start entering this age group beginning in two years. That influx of fresh money could boost the S&P 500.
If history is any guide, the S&P 500 is almost certain to reach 15,000 eventually. Getting there by 2030 will probably require a clean set of economic circumstances with no major shocks, because it implies a compound annual gain of almost 18%, which is far above the index's average return. An event like the 2008 global financial crisis or even another pandemic could add years to Lee's target. If AI fails to live up to expectations, that could also weigh on future returns.
Nevertheless, it might be a great idea for investors to buy the Vanguard S&P 500 ETF during the recent correction. Even if the index falls short of Lee's target when 2030 rolls around, it's very likely to be much higher than it is today.
